Published Tuesday 1st June 2021

What is happening?

From July 1st 2021 the VAT rules for any non-EU business (including those UK based) selling goods valued upto €150 online directly to EU consumers will undergo significant changes.

What is changing?

  1. The low-value VAT exemption of €22 is being abolished.
  2. Any business selling goods online to EU customers will be responsible for EU VAT compliance, irrespective of value of goods.
  3. The IOSS (Import One-Stop-Shop) procedure is being launched for B2C businesses selling goods valued at €150 or less , to help them deal with their EU VAT obligations.

Although the changes are primarily aimed at the B2C market, it is currently unclear what impact it will have on B2B.

Sounds like more bureaucracy

Yes, for any business currently selling goods into the EU valued up to €22 it will create more paperwork, costs and issues. These businesses will be required to declare and pay for VAT on all their EU sales, which has not been necessary until now. However, the IOSS system will make exporting easier for any business whose goods are valued between upto €150.

Implications of the IOSS System

One of the key implications of Brexit for many exporters has been the change in the way VAT is charged. At present any non-EU business selling online to EU customers above the €22 threshold has had to charge VAT at point of import, not point of sale, leading to the issues we have seen widely publicised.

The Current System

  • Businesses being required to register for VAT payments, and possibly financial intermediaries in every EU member state they sell to.
  • Alternatively some are leaving their customers to pay the VAT, leading to goods being refused or returned and unhappy customers facing unexpected bills.

The New IOSS System

  • Business can charge VAT at point of sale, so no unexpected VAT bills for the end consumer. The applicable rate being determined by the delivery address of the consumer
  • No need to VAT register in every EU member state being sold to. IOSS registration is required in only one EU member state for payment of sales VAT throughout all member states. A fiscal intermediary may also need to be appointed.
  • Declaration and payment for goods in one periodic VAT return
  • Any consignment showing an IOSS registered number is likely to move more quickly through customs as it will show VAT has been paid at point of sale
  • Sellers that show as IOSS registered should increase customer confidence as they will know they will not receive a VAT bill on their goods.

Does this solve all the problems?

Unfortunately this will not solve all the problems, it is certainly a step in the right direction and simplifies the VAT process. However, please note the following:

  • IOSS registration is not an obligation but any business not registered will still need to follow the current system.
  • Whilst this helps the VAT issues, import duties will still be payable – if applicable.
  • Only applies to shipments of goods valued at €150 or below, for goods above this threshold the situation has not changed.

This represents an ideal opportunity for any business selling directly to EU customers to review their supply chain and prepare for the changes. Whilst we can’t change the legislation at ERA we can help you understand the implications and make sure you have the right suppliers in-place to meet your needs.

About the Author: Rikesh Nichani, brings over 18 years of experience in business operations gained as owner and managing director of a chain of retail stores specialising in logistics and business services.